CHAPTER 2 QUIZ1. Tanner Co. management desires cost information
regarding their Rawhide brand. The Rawhide brand is a(n) a. cost
object. b. cost driver. c. cost assignment. d. actual cost. The
cost of replacement light bulbs on campus would be a direct cost to
a college but would need to be allocated as an indirect cost to a.
departments. b. buildings. c. schools. d. individual student
instruction. What is the total fixed cost of the shipping
department of EZ-Mail Clothing Co. if it has the following
information for 2002? Salaries $800,000 75% of employees on
guaranteed contracts Packaging $400,000 depending on size of
item(s) shipped Postage $500,000 depending on weight of item(s)
shipped Rent of warehouse space $250,000 annual lease a. b. c. d.
4. $850,000 $900,000 $1,050,000 $1,950,000
2.
3.
Morton Graphics successfully bid on a job printing standard
notebook covers during the year using last years price of $0.27 per
cover. This amount was calculated from prior year costs, noting
that no changes in any costs had occurred from the past year to the
current year. At the end of the year, the company manager was
shocked to discover that the company had suffered a loss. How could
this be? she exclaimed. We had no increases in cost and our price
was the same as last year. Last year we had a healthy income. What
could explain the companys loss in income this current year? a.
Their costs were all variable costs and the amount produced and
sold increased. b. Their costs were mostly fixed costs and the
amount produced this year was less than last year. c. They used a
different cost object this year than the previous year. d. Their
costs last year were actual costs but they used budgeted costs to
make their bids. Which type of company converts materials into
finished products? a. Not-for-profit b. Service c. Merchandising d.
Manufacturing
5.
6.
The three categories of inventories commonly found in many
manufacturing companies are: a. Direct materials, direct labor, and
indirect manufacturing costs. b. Purchased goods, period costs, and
cost of goods sold. c. Direct materials, work in process, and
finished goods. d. LIFO, FIFO, and weighted average. Inventoriable
costs are a. only purchased goods for resale. b. a category of
costs used only for manufacturing companies. c. recorded as
expenses when incurred and later reclassified as assets. d.
recorded as assets when incurred. Period costs are a. all costs in
the income statement other than cost of goods sold. b. defined as
manufacturing costs incurred this period on the schedule of cost of
goods manufactured. c. always recorded as assets when first
incurred. d. those costs that benefit future periods. The cost of a
product can be measured as any of the following except as cost a.
gathered from all areas of the value chain. b. identified as period
cost. c. designated as manufacturing cost only. d. explicitly
defined by contract. The primary focus of cost management is to a.
help managers make different decisions. b. calculate product costs.
c. aid managers in budgeting. d. distinguish between relevant and
irrelevant information.
7.
8.
9.
10.
CHAPTER 2 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. a d a b d
c d a b a
Quiz Question Calculations 3. Fixed costs = (800,000) 75% +
250,000 = $850,000
CHAPTER 3 QUIZ1. Which of the following is not a factor in
cost-volume-profit analysis? a. Units sold b. Selling price c.
Total variable costs d. Fixed costs of a product Which of the
following is not an assumption of cost-volume-profit analysis? a.
The time value of money is incorporated in the analysis. b. Costs
can be classified into variable and fixed components. c. The
behavior of revenues and expenses is accurately portrayed as linear
over the relevant range. d. The number of output units is the only
driver. Contribution margin is calculated as a. total revenue total
fixed costs. b. total revenue total manufacturing costs (CGS). c.
total revenue total variable costs. d. operating income + total
variable costs. Questions 4-6 are based on the following data. Tee
Times, Inc. produces and sells the finest quality golf clubs in all
of Clay County. The company expects the following revenues and
costs in 2004 for its Elite Quality golf club sets:
2.
3.
Revenues (400 sets sold @ $600 per set) Variable costs Fixed
costs 4.
$240,000 160,000 50,000
How many sets of clubs must be sold for Tee Times, Inc. to reach
their breakeven point? a. 400 b. 250 c. 200 d. 150 How many sets of
clubs must be sold to earn a target operating income of $90,000? a.
700 b. 500 c. 400 d. 300 What amount of sales must Tee Times, Inc.
have to earn a target net income of $63,000 if they have a tax rate
of 30%? a. $489,000 b. $429,000 c. $420,000 d. $300,000 One way for
managers to cope with uncertainty in profit planning is to a. use
CVP analysis because it assumes certainty. b. recommend management
hire a futurist whose work is to predict business trends. c. wait
to see what does happen and prepare a report based on actual
amounts. d. use sensitivity analysis to explore various what-if
scenarios in order to analyze changes in revenues or costs or
quantities. The Beta Mu Omega Chi (BMOC) fraternity is looking to
contract with a local band to perform at its annual mixer. If BMOC
expects to sell 250 tickets to the mixer at $10 each, which of the
following arrangements with the band will be in the best interest
of the fraternity? a. $2500 fixed fee b. $1000 fixed fee plus $5
per person attending c. $10 per person attending d. $25 per couple
attending Use the following information for questions 9 and 10. LSB
Company has the following income statement: Revenues $100,000
Variable Costs 40,000 Contribution Margin 60,000 Fixed Costs 30,000
Operating Income 30,000 9. What is LSBs DOL? a. 3.33 b. 2.00
5.
6.
7.
8.
c. d. 10.
0.50 1.00
If LSBs sales increase by $20,000, what will be the companys
operating profit? a. $42,000 b. $12,000 c. $50,000 d. $30,000 Twin
Products Company produces and sells two products. Product M sells
for $12 and has variable costs of $6. Product W sells for $15 and
has variable costs of $10. Twin predicted sales of 25,000 units of
M and 20,000 of W. Fixed costs are $60,000 per month. Assume that
Twin achieved its sales goal of $600,000 for September, but fell
short of its expected operating income of $190,000. Which of the
following descriptions best describes the actual results reported
of revenue of $600,000 and operating income of less than $190,000?
a. Twin sold 50,000 of M and no product W. b. Twin sold more of
both products M and W than expected. c. Twin sold more of product W
and less of product M than expected. d. Twin sold more of product M
and less of product W than expected. In the situation of multiple
cost drivers, CVP analysis can a. be modified so that the various
simple formulas can be used by applying them separately to each
cost driver. b. apply the same formulas as that used for a
single-cost driver. c. be changed by incorporating all of the cost
drivers into the breakeven formula to calculate the unique point of
output at which the company would break even. d. be adapted by
incorporating the cost drivers into the calculation of the variable
costs. Which of the following statements is true? a. Gross margin
is another term for contribution margin. b. Contribution margin is
acceptable for use in external financial statements. c.
Contribution margin is used to help managers in decision making. d.
Gross margin is revenues minus variable cost.
11.
12.
13.
CHAPTER 3 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
13. c a c b a c d b b b c b c
Quiz Question Calculations 4. Variable costs per unit =
$160,000/400 units sold = $400 Contribution Margin = $600 400 =
$200 per unit Breakeven point = $50,000/$200 = 250 units TOI =
$50,000 + $90,000/$200 = 700 units TNI = $50,000 + $63,000/(1
.30)/$200 = 700 units $600 = $420,000 Cost of option a: $2,500
Profit = 0 Cost of option b: $1,000 + 5(250) = $2,250 Profit = $250
Cost of option c: $10 (250) = $2,500 Profit = 0 Cost of option d:
$25 (125) = $3,125 Loss ($625) DOL = $60,000/$30,000 = 2.0 $20,000/
$100,000 = 20% 20% 2 = 40% 40% $30,000 = $12,000 increase
5. 6. 1.
2. 3.
CHAPTER 4 QUIZ1. A cost-allocation base may be any of the
following except a a. cost driver. b. cost pool. c. way to link
indirect costs to a cost object. d. nonfinancial quantity. A
company that manufactures dentures for use by local dentists would
use a. process costing. b. personal costing. c. operations costing.
d. job costing. The first step in the seven-step approach to job
costing is to a. select the cost-allocation base to use in
assigning indirect costs to the job. b. identify the direct costs
of the job. c. identify the job that is the chosen cost object. d.
identify the indirect-cost pools associated with the job. Using
normal costing rather than actual costing requires that the
allocating of indirect manufacturing costs to work-in-process be a.
done on a more timely basis, such as every two weeks rather than
every month. b. journalized only at year end when adjusting entries
are normally made. c. calculated by using the budgeted rate times
actual quantity of allocation base. d. calculated by using the
budgeted rate times the budgeted quantity of allocation base.
Manufacturing Overhead Control a. represents actual overhead costs
incurred. b. has a normal debit balance. c. is a control account
with a subsidiary ledger detailing the components of manufacturing
overhead. d. All of the above Which of the following accounts is
not classified as an asset? a. Manufacturing Overhead Control b.
Materials Control c. Work-in-Process Control d. Finished Goods
Control The costs incurred on jobs that are currently in production
but are not yet complete would appear in the a. Materials Control
account. b. Finished Goods Control account. c. Manufacturing
Overhead Control account. d. Work-in-Process Control account. The
Precision Widget Company had the following balances in their
accounts at the end of the accounting period:
2.
3.
4.
5.
6.
7.
8.
Work-in-Process Finished Goods Cost of Goods Sold
$ 5,000 20,000 200,000
If their manufacturing overhead was overallocated by $8,000 and
Precision Widget adjusts their accounts using a proration based on
total ending balances, the revised ending balance for Cost of Goods
Sold would be a. $192,880. b. $200,00. c. $207,120. d. $208,000. 9.
Liberty Box Company calculated an indirect-cost rate of $12.50 per
labor hour for fringe benefits for use in their normal costing
system. At the end of the year, the actual cost of fringe benefits
was $980,000. The total of labor hours worked for the year was the
same amount as budgeted, 70,000 hours. If Job #640 required the use
of 15 labor hours and the company used the adjusted allocation rate
approach, by what amount would the cost of Job #640 change? a.
$560.00 b. $281.25 c. $22.50 d. $20.50 If each professional in a
service company is paid on an annual salary basis, why might the
firm want to use a predetermined or budgeted rate for direct or
professional labor? a. A predetermined or budgeted rate is easier
to justify to a client who might question a billing rate. b.
Professional staff persons do not keep accurate records of the jobs
on which they work. c. Professional staff incurs more client costs,
such as travel, lodging, and outof-town meals, while working on a
job. d. Year-end bonuses paid to the professional staff are
difficult to trace to individual jobs.
10.
CHAPTER 4 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b d c c d
a d a c d
Quiz Question Calculations Work in Process $5,000 / 225,000 2.2%
$8,000 = 176 Finished Goods $20,000 /225,000 8.9% $8,000 = 712 Cost
of Goods Sold $200,000 / 225,000 88.9% $8,000 = 7,120 200,000 7,120
= $192,880 9. 980.000/70,000 = $14.00 (actual rate) $14,000 $12.50
= $1.50 excess of actual over budget 1.50 15 hours $22.50
additional cost
CHAPTER 5 QUIZ1. Production-cost cross-subsidization results
from a. allocating indirect costs to multiple products. b.
assigning traced costs to each product. c. assigning costs to
different products using varied costing systems within the same
organization. d. assigning broadly averaged costs across multiple
products without recognizing amounts of resources used by which
products. In refining a cost system
2.
a.
b. c. d.
total direct costs are unchanged because they can be traced in
an economically feasible way to the product and traced costs are
more accurate. the costs are grouped in homogeneous pools of the
same or similar amounts. the criterion of cause and effect is used
to relate indirect costs to a factor that systematically links to a
cost object. the organization looks for cost-allocation bases that
will provide a uniform spreading of indirect costs to each
product.
Question 3 is based on the following data. The average cost data
are for In-Sync Fixtures Companys (a retailer) only two product
lines, Marblette and Italian Marble. Marblette Purchase volume
20,000 Purchase cost per unit $50 Shipments received 12 Hours used
per shipment * 5 * These data were accumulated after a careful
activity analysis. Italian Marble 1,000 $50 12 3
Currently, In-Sync Fixtures uses a traditional costing system
with indirect costs allocated using purchased cost of goods as a
basis. In-Sync Fixtures is considering refining the allocation of
their receiving costs of $40,000. They realize that the Italian
Marble is heavier and requires more care than the Marblette but
that the Marblette comes in larger volume. 3. Which statement can
be made using the results of the activity analysis performed by
In-Sync Fixtures? a. The use of this refined activity-based costing
system will increase the accuracy of the resulting product costs
because a more appropriate cost driver will be used as the
allocation base. b. The traditional allocation method currently
being used is causing product-cost cross-subsidization with the
product line Marblette being undercosted. c. The cost allocated to
the Italian Marble product line under the current traditional
system is more than the activity-based costing allocated cost. d.
The use of this refined activity-based costing system will increase
the accuracy of the resulting product costs because it probably
will cost less to trace the costs to the product lines. Advertising
of a specific product is an example of a. unit-level costs. b.
batch-level costs. c. product-sustaining costs. d.
facility-sustaining costs.
4.
5.
The allocation of indirect costs in an activity-based costing
system a. may require other costs to be allocated to activities
before the costs of the activities can be allocated to the
products. b. is simplified because more costs are identified as
direct costs. c. requires the use of heterogeneous cost pools. d.
is simplified because a limited number of activities are identified
as cost objects.
Information for questions 6 and 7 is given below. Jackson
Enterprises manufactures two productsA basic gizmo and an advanced
model gizmo. The company is using an activity-based costing system.
They have identified three activities for allocation of indirect
costs. Activity Materials receiving Production setup Quality
inspection Cost Driver Number of parts Number of setups Inspection
time Cost-Allocation Rate $2.00 per part $500.00 per setup $90 per
hour
A production run for the basic model is 250 units, for the
advanced model, 100 units. Each unit of product consumes the
following activities: Number of Parts Number of Setups Basic Gizmo
10 50 Advanced Gizmo 15 25 Direct costs for the two products are as
follows: Direct Materials Direct Labor Basic Gizmo $50.00 $ 75.00
Advanced Gizmo $95.00 $125.00 6. The amount of overhead allocated
to one unit of the basic model would be a. $592. b. $37. c. $162.
d. $65. The total cost of an advanced model would be a. $162. b.
$65. c. $200. d. $265.
Inspection Time 10 minutes 20 minutes
7.
8.
Evaluating customer reaction of the trade-off of giving up some
features of a product for a lower price would best fit which
category of management decisions under activity-based management?
a. Pricing and product-mix decisions b. Cost reduction decisions c.
Design decisions d. Discretionary decisions Which of the following
statements is more representative of activity-based costing in
comparison to a department-costing system? a. The use of multiple
cost-allocation bases b. The use of indirect-cost rates for
significant resource use c. The use of activities having a
cause-and-effect relationship d. The use of multiple cost pools A
significant limitation of activity-based costing is the a.
attention given to indirect cost allocation. b. many necessary
calculations. c. operations staffs attitude toward the accounting
staff. d. use it makes of technology.
9.
10.
CHAPTER 5 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. d c a c a
b d c c b
Quiz Question Calculations 6. 7. (2 10) + ($500/250) + ($90/60
10) = $37 $75 + $125 + ($2 15) + ($500/100) + ($90/60 20)
CHAPTER 7 QUIZ1. [CMA Adapted] Flexible budgets a. accommodate
changes in the inflation rate. b. accommodate changes in activity
levels. c. are used to evaluate capacity utilization. d. are static
budgets that have been revised for changes in price(s). [CMA
Adapted] The following information is available for the Gabriel
Products Company for the month of July: Static Budget Actual Units
5,000 5,100 Sales revenue $60,000 $58,650 Variable manufacturing
costs $15,000 $16,320 Fixed manufacturing costs $18,000 $17,000
2.
Variable marketing and administrative expense $10,000 Fixed
marketing and administrative expense $12,000 The total sales-volume
variance for the month of July would be a. $2,550 unfavorable. b.
$1,350 unfavorable. c. $700 favorable. d. $100 favorable. 3.
$10,500 $11,000
[CMA Adapted] Bartholomew Corporations master budget calls for
the production of 6,000 units of product monthly. The master budget
includes indirect labor of $396,000 annually; Bartholomew considers
indirect labor to be a variable cost. During the month of
September, 5,600 units of product were produced, and indirect labor
costs of $30,970 were incurred. A performance report utilizing
flexible budgeting would report a flexible budget variance for
indirect labor of a. $170 unfavorable. b. $170 favorable. c. $2,030
unfavorable. d. $2,030 favorable. Which of the following is not an
advantage for using standard costs for variance analysis? a.
Standards simplify product costing. b. Standards are developed
using past costs and are available at a relatively low cost. c.
Standards are usually expressed on a per-unit basis. d. Standards
can take into account expected changes planned to occur in the
budgeted period.
4.
5.
Information on Pruitt Companys direct-material costs for the
month of July 2005 was as follows: Actual quantity purchased 30,000
units Actual unit purchase price $2.75 Materials purchase-price
variance unfavorable (based on purchases) $1,500 Standard quantity
allowed for actual production 24,000 units Actual quantity used
22,000 units [CPA Adapted] For July 2005 there was a favorable
direct-materials efficiency variance of a. $7,950. b. $5,500. c.
$5,400. d. $5,600.
6.
Information for Garner Companys direct-labor costs for the month
of September 2005 was as follows: Actual direct-labor hours
Standard direct-labor hours Total direct-labor payroll Direct-labor
efficiency variancefavorable 34,500 hours 35,000 hours $241,500 $
3,200
[CPA Adapted] What is Garners direct-labor price (or rate)
variance? a. $21,000 favorable b. $21,000 unfavorable c. $17,250
unfavorable d. $20,700 unfavorable 7. Performance evaluation using
variance analysis should guard against a. emphasis on a single
performance measure. b. emphasis on total company objectives. c.
basing effect of a managers action on total costs of the company as
a whole. d. highlighting individual aspects of performance. The
basic principles and concepts of variance analysis can be applied
to activity-based costing a. by application as to the levels of
cost hierarchy. b. through careful classification of costs as
direct and indirect as applied to the product or job. c. with use
of standard costing systems only.
8.
d.
only through those activities related to individual units of
product or service.
9.
Benchmarking is a. relatively easy to do with the amount of
available financial information about companies. b. best done with
the best in their field regardless of type of company. c. simply
reporting the magnitude of differences in costs or revenues across
companies. d. making comparisons to direct attention to why
differences in costs exist across companies.
CHAPTER 7 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. b c a b c d a
a d
Quiz Question Calculations 2. 5,100 5,000 = 100 units $7* =
$700F Unit CM = 60,000 15,000 10,000/35,000 = $7 3. Actual DL
Flexible budget 5,600 $5.50 Flexible budget variance Actual price
30,000 2.75 $30,970 30,800 170 U 82,500
5.
Minus unfavorable price variance Materials at standard
1,500 81,000
81,000/30,000 = $2.70 standard price per unit Actual quantity
Standard quantity Efficiency variance 6. Actual direct labor cost
Standard 34,500 6.40 Price variance 22,000 units 24,000 units 2,000
1.70 = $5,400 F $241,500 $220,800 20.700 U
Standard rate = 3,200/(35,000 34,500) = $6.40
FLEXIBLE-BUDGET AND SALES-VOLUME VARIANCE ANALYSIS Actual
Results: Actual Units Sold X Actual Sales Mix X Actual CM/unit
Flexible Budget: Actual Units Sold X Actual Sales Mix X Budgeted
CM/unit Static Budget: Budgeted Units Sold X Budgeted Sales Mix X
Budgeted CM/unit
| - - - - Flexible budget variance - - - - | - - - -
Sales-volume variance - - - - | | - - - - - - - - - - - - - - - - -
- - Static budget variance - - - - - -- - - - - - - - - - |
SALES-MIX AND SALES-QUANTITY VARIANCE ANALYSIS Flexible Budget:
Actual Units Sold X Actual Sales Mix X Budgeted CM/unit Actual
Units Sold X Budgeted Sales Mix X Budgeted CM/unit Static Budget:
Budgeted Units Sold X Budgeted Sales Mix X Budgeted CM/unit
| - - - - - - Sales mix variance - - - - - | - - - -
Sales-quantity variance - - - - | | - - - - - - - - - - - - - - - -
- - - Sales-volume variance - - - - - - - - - - - - - - - |
MARKET-SHARE AND MARKET-SIZE VARIANCE ANALYSIS Flexible Budget:
Actual Market Size X Actual Market Share X Budgeted CM/unit Actual
Market Size X Budgeted Market Share X Budgeted CM/unit Static
Budget: Budgeted Market Size X Budgeted Market Share X Budgeted
CM/unit
| - - - - - - Market share variance - - - - - | - - - - Market
size variance - - - - | | - - - - - - - - - - - - - - - - - - -
Sales-quantity variance - - - - - - - - - - - - - - - | INPUT PRICE
AND EFFICIENCY VARIANCES Actual Costs: Actual Input output) X
Actual Price X Budgeted Price X Budgeted Price | - - - - - - -
Price variance - - - - - - - | - - - - - - - Efficiency variance -
- - - - - - | | - - - - - - - - - - - - - - - - - - - Flexible
budget variance - - - - - -- - - - - - ----- - - - | INPUT YIELD
AND MIX VARIANCES Actual Input/Actual Mix : Actual Inputs Used
output) X Actual Input Mix X Budgeted Price X Budgeted Input Mix X
Budgeted Price X Budgeted Input Mix X Budgeted Price Actual Input
Used Flexible Budget: Budgeted Input (for actual Actual Input
Flexible Budget: Budgeted Input (for actual
| - - - - - - - - Mix variance - - - - - - - - | - - - - - - - -
- Yield variance - - - - - - - |
| - - - - - - - - - - - - - - - - - - - Efficiency variance - -
- - - - - - - - - - - - - - - - - - |
CHAPTER 8 QUIZ1. Which of the following pertains primarily to
the planning of fixed overhead costs? a. A standard rate per output
unit is developed. b. Only essential activities are to be
undertaken. c. Activities are to be undertaken in the most
efficient method. d. Key decisions are made at the start of the
budget period determining the level of costs. In selecting a cost
allocation base for variable overhead, what criteria for the base
is preferred? a. Ease of acquiring reliable information for
accurate allocations b. A cause-and-effect relationship between the
cost and the activity level c. A single base that will simplify the
allocation process d. One that has been used in the past
2.
The following data apply to questions 39. Sebastian Company,
which manufactures electrical switches, uses a standard cost system
and carries all inventories at standard. The standard manufacturing
overhead costs per switch are based on direct labor hours and are
shown below: Variable overhead (5 hours @ $12 per direct
manufacturing labor hour) $ 60 Fixed overhead (5 hours @ $15* per
direct manufacturing labor hour) 75 Total overhead per switch $135
*Based on capacity of 200,000 direct manufacturing labor hours per
month. The following information is available for the month of
December: 3. 46,000 switches were produced although 40,000 switches
were scheduled to be produced. 225,000 direct manufacturing labor
hours were worked at a total cost of $5,625,000. Variable
manufacturing overhead costs were $2,750,000. Fixed manufacturing
overhead costs were $3,050,000.
[CMA Adapted] The variable overhead spending variance for
December was a. $50,000 U.
b. c. d. 4.
$350,000 U. $10,000 F. $60,000 F.
[CMA Adapted] The variable manufacturing overhead efficiency
variance for December was a. $50,000 U. b. $350,000 U. c. $10,000
F. d. $60,000 F.
5.
The total variable manufacturing overhead variance was a.
$10.000 F. b. $10,000 U. c. $110,000 U. d. $110,000 F. [CMA
Adapted] The fixed manufacturing overhead spending variance for
December was a. $450,000 F. b. $400,000 F. c. $50,000 U. d.
$775,000 F. The fixed overhead production volume variance for
December was a. $450,000 F. b. $400,000 F. c. $50,000 U. d.
$775,000 F. What amount should be credited to the Allocated
Manufacturing Overhead Control account for the month of December?
a. $6,210,000 b. $5,800,000 c. $5,760,000 d. $5,700,000 Under the
2-variance method, the flexible-budget variance for December was a.
$10,000 F. b. $40,000 U. c. $50,000 U. d. $100,000 U.
6.
7.
8.
9.
10. Under the 3-variance method, the spending variance for
December was a. $10,000 F. b. $40,000 U. c. $50,000 U. d. $100,000
U. 11. Which of the following statements is true about overhead
cost variance analysis using activity-based costing? a. Overhead
cost variances are calculated for output-unit level costs only. b.
Overhead cost variances are calculated for variable manufacturing
overhead costs only. c. A 4-variance analysis can be conducted.
d.
Activity-based costing uses input measures for all activities,
resulting in the inability to do flexible budgets needed for
variance analysis.
CHAPTER 8 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. d b a
d a c a a b d c
Quiz Question Calculations 3. Standard 225,000 DLH $12 Actual
VOH Spending variance = $2,700,000 2,750,000 $ 50,000 U = 230,000
225,000 5,000 $12 = $60,000
4.
Standard 46,000 switches 5 DLH/switch Actual DLH VOH Efficiency
variance
F 5. 6. Total variable overhead variance = $50,000 U + $60,000 F
= $10,000 F Budgeted fixed OH 200,000 DLH $15/DLH = Actual fixed OH
FOH Spending variance Budgeted DLH Allocated 46,000 5 $3,000,000
3,050,000 50,000 U
7.
200,000 230,000 30,000 15 = 450,000 F
230,000 (15 + 12) = $6,210,000 50,000 U 60,000 F + 50,000 U =
40,000 U 50,000 U + 50,000 U = 100,000 U
CHAPTER 15 QUIZ1. The use of a dual-rate cost-allocation method
recognizes a. the improvements in technology allowing for use of
multiple cost pools. b. the need to use both budgeted and actual
cost rates when allocating. c. the need to use both budgeted and
actual usage of quantities when allocating. d. the behavior aspect
of costs. 2. Managers are affected by risks they have to take and
would prefer to use a. actual rates for cost allocation because the
rates are calculated from real amounts. b. actual rates for cost
allocation because actual rates are easier to justify to users. c.
budgeted rates for cost allocation because the rates are known in
advance. d. budgeted rates for cost allocation because any
variances are transferred to users. The following data apply to
questions 35. Billy Stone, Inc. budgets the following amounts for
its Buildings & Grounds and Computer Services Departments in
servicing each other and the two manufacturing divisions of Signs
and Mailers: Used By Supplied By Mailers Buildings & Grounds
0.20 Computer Services 0.55 Building & Grounds 0.15 Computer
Services 0.20 Signs 0.60 0.30
The actual results for the time period were as follows: Used By
Supplied By Mailers Buildings & Grounds 0.30 Computer Services
0.40 Building & Grounds 0.25 Computer Services 0.10 Signs 0.60
0.35
Actual cost data for each department are: Buildings &
Grounds Computer Services Fixed $ 50,000 $100,000 Variable $90,000
$21,000
3. Total fixed costs allocated from Buildings & Grounds to
the Signs Department, using the preferred allocation basis, by the
direct allocation method are a. $37,500. b. $33,333. c. $30,000. d.
$25,000. 4. Total variable costs allocated from Computer Services
to Mailers Department, using the preferred allocation basis, by the
step-down allocation method (begin with Building & Grounds) are
a. $8,400. b. $12,000. c. $16,000. d. $25,235.
5. The equation to determine the total variable costs of
Computer Services using the preferred allocation basis for the
reciprocal allocation method is a. CS = $21,000 + 0.25 B&G. b.
CS = $21,000 + 0.20 B&G. c. CS = $21,000 + 0.15 B&G. d. CS
= $21,000 + 0.10 B&G. 6. If a cost is incurred for more than
one user, that cost is considered a(n) a. homogeneous cost. b.
common cost. c. stand-alone cost. d. incremental cost. 7. Which of
the following is often the most basic cause of contract disputes?
a. Allowable costs b. Cost-allocation issues c. Use of common costs
d. Writing into the contract rules of the game 8. Bundling of
products creates the need for revenue allocation for each of the
following except when a. selling prices for the bundle are set to
recoup the stand-alone prices of each product in the bundle.
b. c. d.
the manager is responsible for profitability on a
product-by-product basis. the managers bonus is based upon product
profitability. persons involved with product development are
compensated by percentage of revenues realized.
Use the following information for questions 9 and 10. Trio
Company sells three products, Do, Ra, and Mi, for prices of $8, $7,
and $5, respectively. They also offer combinations of the products
for reduced overall prices. The following packages are available:
(1) a package containing Do and Ra sells for $13.50, (2) a package
of Do and Mi sells for $11.50, (3) a package containing Ra and Mi
sells for $10.50, and (4) a package of all three products, Do, Ra,
and Mi, sells for $17.00. 9. If Trio Company uses the stand-alone
method (based on selling prices) to allocate revenues to products,
the amount of revenues to be allocated to Do from a package of all
three products, as described in (4) above, sold would be a. $8.00.
b. $6.80. c. $5.95. d. $4.25. If Trio Company uses the
incremental-revenues allocation method and has designated Ra as the
primary product, the amount of revenues from a bundled package of
all three products to be allocated to Ra would be a. $7.00. b.
$6.80. c. $5.95. d. $4.25.
10.
CHAPTER 16 QUIZThe following data apply to questions 15. Brant
Corporation manufactures two products out of a joint processScout
and Andro. The joint (common) costs incurred are $400,000 for a
standard production run that generates 70,000 pounds of Scout and
30,000 pounds of Andro. Scout sells for $9.00 per pound whereas
Andro sells for $7.00 per pound. 1. [CMA Adapted] If there are no
additional processing costs incurred after the splitoff point, the
amount of joint cost of each production run allocated to Scout on a
physical-quantity basis is a. $300,000.
b. c. d.
$280,000. $120,000. $100,000.
2. [CMA Adapted] If there are no additional processing costs
incurred after the splitoff point, the amount of joint cost of each
production run allocated to Andro on a sales value at splitoff
basis is a. $300,000. b. $225,000. c. $175,000. d. $100,000. 3.
[CMA Adapted] If additional processing costs beyond the splitoff
point are $1.00 per pound for Scout and $2.333 per pound for Andro,
the amount of joint cost of each production run allocated to Andro
on a physical quantity basis is a. $300,000. b. $280,000. c.
$120,000. d. $100,000. 4. [CMA Adapted] If additional processing
costs beyond the splitoff point are $1.00 per pound for Scout and
$2.333 per pound for Andro, the amount of joint cost of each
production run allocated to Andro on an estimated net realizable
value basis is a. $80,000. b. $147,350. c. $175,000. d. $320,000.
5. Assume the same cost information as in question 4. The amount of
joint cost of each production run allocated to Scout using the
constant gross-margin percentage NRV method is a. $224,910. b.
$260,120. c. $335,090. d. $405,090. 6. [CPA Adapted] For purposes
of allocating joint costs to joint products, the sales value at
splitoff method could be used in which of the following situations?
No costs Cost beyond beyond splitoff splitoff a. Yes No b. Yes Yes
c. No Yes
d.
No
No
7. Products G and H are joint products developed from the same
process with each being processed further. Joint costs are incurred
until splitoff, the separable costs are incurred in further
refining each product. Sales values of G and H at splitoff are used
to allocate joint costs. If the sales value of G at splitoff
increases and all other costs and selling prices remain unchanged,
joint costs allocated to: G H a. increases increases b. increases
decreases c. decreases decreases d. decreases increases 8. [CPA
Adapted] Tanner Company manufactures products Katran and Klare from
a joint process. Product Katran has been allocated $7,500 of total
joint costs of $30,000 for the 1,500 units produced. Katran can be
sold at the splitoff point for $4 per unit, or it can be processed
further with additional costs of $2,000 and sold for $7 per unit.
If Katran is processed further and sold, the result would be a. a
breakeven situation. b. an overall loss of $1,500. c. a gain of
$2,500 from further processing. d. a gain of $1,000 from further
processing. 9. [CPA Adapted] In accounting for byproducts, the
value of the byproduct may be recognized at the time of Production
Sale a. Yes No b. Yes Yes c. No No d. No Yes 10. [CPA Adapted]
Mohler Corporation manufactures a product that yields the byproduct
Jep. The only costs associated with Jep are selling costs of $0.10
for each unit sold. Mohler accounts for sales of Jep by deducting
Jeps separable costs from Jeps sales and then deducting this net
amount from the major products cost of goods sold. Jeps sales were
200,000 units at $1.00 each. If Mohler changes its method of
accounting for Jeps sales of showing the net amount as additional
sales revenue, the Mohlers gross margin would a. increase by
$180,000. b. increase by $200,000. c. increase by $220,000. d. be
unaffected.
CHAPTER 16 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b d c a
c b b c b d
Quiz Question Calculations 1. Scout $400,000 70,000 lbs /100,000
lbs = $280,000 Andro $400,000 30,000 lbs / 100,000 lbs = $120,000
Scout 70,000 lbs $9 Andro 30,000lbs $7 = = $630,000 210,000
$840,000
2.
Scout 630,000/840,000 $400,000 = $300,000 Andro 210,000/840,000
$400,000 = #100,000 3. 4. See answer to #1 Scout Revenues
Additional Proc $1 70,000 Andro Revenues Additional Proc $2.33
30,000 $630,000 (70,000) $560,000 $210,000 (70,000) NRV Scout
560,000/700,000 $400,000 = $320,000 Andro 140,000/700,000 $400,000
= $ 80,000 5. Sales Separable Costs Scout Andro Total $630,000
$210,000 $840,000 (70,000) (70,000) (140,000) $560,000 $140,000
$700,000 140,000 $700,000
Joint Costs Gross Profit *Adjusted for rounding 1.
(335,090) 224,910
(65,010) 74,970*
(400,000) 300,000
35.7%**
**300,000/840,000
Katran @ splitoff value $4 x 11500 = $6,000 Process further $7
1500 = 10,500 less separable costs of $2,000 = $8,500 $8,500 $6,000
= $2,000 gain from further processing
10.
Sales of Jep Separable costs Jeb Gross Margin
200,000 $1 = $200,000 20,000 $.10 = 20,000 $180,000
However, this amount is currently being deducted from the cost
of the main product, so gross margin remains unchanged.
CHAPTER 17 QUIZUse the following information for questions 110.
Top That manufactures baseball-style hats. Material is introduced
at the beginning of the process in the Cutting Department.
Conversion costs are incurred (and allocated) uniformly throughout
the process. As the cutting of material is completed, the pieces
are immediately transferred to the Sewing Department. Data for the
Cutting Department for the month of February 2009 follow:
Work in process, January 31 50,000 units 100% complete for
direct materials; 40% completed for conversion costs actual costs
of direct materials, $70,500; actual costs of conversion, $34,050
Units started during February, 225,000 Units completed during
February 200,000 Work in process, February 28 75,000 units 100%
complete for direct materials; 20% completed for conversion costs
Direct materials added during February [actual costs] $342,000
Conversion costs added during February [actual costs] $352,950
1. Assuming Top That uses the weighted-average method to account
for inventories, the equivalent units of work for the month of
February are Direct Materials Conversion Costs
a. b. c. d.
225,000 200,000 275,000 225,000
225,000 200,000 215,000 200,000
2. Assuming Top That used the weighted-average method to account
for inventories, the cost per equivalent whole unit produced during
February is a. $3.30. b. $3.55. c. $3.77. d. $4.00. 3. Assuming Top
That uses the weighted-average method to account for inventories,
the assignment of costs to work in process at the end of February
is a. $300,000. b. $266,250. c $166,525. d. $139,500.
4. If Top That uses the first-in, first-out (FIFO) method to
account for inventories, the equivalent units of work for the month
of February are Direct Materials Conversion Costs a. 225,000
225,000 b. 225,000 195,000 c. 275,000 200,000 d. 200,000 195,000 5.
If Top That uses the FIFO method to account for inventories, the
costs per equivalent unit for February are Direct Materials
Conversion Costs a. $1.50 $1.76 b. $1.83 $1.72 c. $1.71 $1.81 d.
$1.52 $1.81 6. Assuming Top That uses the first-in, first-out
(FIFO) method to account for inventories, the assignment of costs
to units completed and transferred to the Sewing Department during
February is a. $658,350.
b. c. d.
$636,450. $666,000. $652,000.
The following additional data apply to questions 79. Standard
costs for the Cutting Department: Direct materials: $1.50 per unit;
Conversion costs $1.75 per unit 7. The standard costs of units
completed and transferred from the Cutting Department during
February is a. $731,250. b. $650,000. c. $678,750. d. $600,000. 8.
The conversion costs variance for the month of February is a.
$40,800 favorable. b. $94,250 favorable. c. $11,700 unfavorable. d.
$29,750 unfavorable.
9. The journal entry to record inventory costs and
direct-material variances for the month of February is a. Cutting
Department Control 342,000 Direct Material Variances 4,500 Work in
ProcessCutting Department 337,500 b. Work in ProcessCutting
Department Direct Material Variances Cutting Department Control
Work in ProcessCutting Department Direct Material Variances Cutting
Department Control 337,500 4,500 342,000 342,000 4,500 337,500
c.
d.
Work in ProcessCutting Department Direct Material Variances
Cutting Department Control
341,250 750 342,000
10. In the Sewing Department, additional direct materials are
added to the product at the end of production. Without prejudice to
your answer for questions 19, assume that 200,000 units were
transferred from the Cutting Department and that the
weightedaverage method is used. Data for February follow: Work in
process, January 3170,000 units (30% complete as to conversion)
Units completed during February240,000 units Work in process,
February 2830,000 units (80% complete as to conversion) For the
Sewing Department, the equivalent units of work done in February is
Transferred In Direct Materials Conversion Costs a. 200,000 200,000
200,000 b. 200,000 170,000 194,000 c. 240,000 240,000 245,000 d.
270,000 240,000 264,000
CHAPTER 17 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. c a d b
d a b c b d
Quiz Question Calculations1. DM = 50,000 + 225,000 = 275,000 EU
CC = 200,000 + .20(75,000) = 215,000 EU 342,000 + 70,500/275,000 =
$1.50/unit for Materials 352,950 + 34,050/215,000 = $1.80/ unit for
Conversion Cost $1.50 + $1.80 = $3.30 3. 75,000 1.50 75,000 .5 1.80
= $112,500 = 27,000 $139,500 = 225,000 EU (number of units started)
= 30,000 = 150,000 = 15,000 195,000
2.
4.
Materials Conversion Cost BI 50,000 .6 S&C EI 75,000 .2
5.
342,000/225,000 = $1.52/unit for Materials 352,950/195,000 =
$1.81/unit for Conversion Cost
6.
Beginning Work in Process To complete Beginning Work in Process
50,000 .6 1.81 $158,850 Started & Completed 150,000 3.33
Transferred to Sewing
$104,550 54,300
499,500 $658,350
7. 1.
200,000 3.25 = $650,000 Standard cost Actual cost Variance $1.75
1.81 .06 195,000 = 11,700U $337,500 342,000 $ 4,500U
2.
Standard 225,000 $1.50 Actual Variance
Transferred in 200,000 + 70,000 = 270,000 Direct Materials
240,000 (units completed, materials added at end) Conversion Cost
240,000 + .8(30,000) = 264,000
CHAPTER 18 QUIZ1. [CPA Adapted] In manufacturing its products
for the month of September 2008, El Dorado Corporation incurred
normal spoilage of $7,000 and abnormal spoilage of $3,000. How much
spoilage cost should El Dorado charge as inventoriable for the
month of September 2005? a. $0 b. $3,000 c. $7,000 d. $10,000 [CPA
Adapted] Spoilage from a manufacturing process was discovered
during an inspection of work in process. In a process-costing
system, the cost of the spoilage would be added to the cost of the
good units produced if the spoilage is Normal Abnormal a. Yes Yes
b. Yes No c. No No d. No Yes
2.
The following data apply to questions 35. Watkins Company had
the following production for the month of June: Units Work in
process, June 1 6,000 Started during June 24,000 Completed and
transferred to finished goods 18,000 Abnormal spoilage incurred
3,000 Work in process, June 30 9,000
Materials are added at the beginning of the process. As to
conversion cost, work in process was 20% complete at the beginning
and 70% complete at the end of the month. Spoilage is detected at
the end of the process. 3. [CPA Adapted] Using the weighted-average
method, the equivalent units for June, with respect to conversion
cost, were a. 30,000. b. 24,300. c. 23,700. d. 27,300. Assume the
manufacturing cost of the spoiled goods is $6,000. The journal
entry to record the spoilage is a. Manufacturing Overhead Control
6,000 Work in Process 6,000 b. Materials Control Work in Process
6,000 6,000
4.
c.
Loss from Abnormal Spoilage Work in Process Finished Goods Work
in Process
6,000 6,000 6,000 6,000
d.
5.
Using the first-in, first out (FIFO) method, the equivalent
units for June, with respect to conversion cost, were a. 26,100. b.
23,100. c. 22,500. d. 19,500. Under process costing and job
costing, the accounting treatment for the normal spoilage (assume
related to normal factory operations) is Process costing Job
costing a. b. Loss account is charged. Upon transfer, spoilage
costs are transferred along with other costs. Upon transfer,
spoilage costs are transferred along with other costs.
Manufacturing overhead control is charged. Loss account is charged.
Loss account is charged.
6.
c.
Manufacturing overhead control is charged. No entry.
d.
7.
[CPA Adapted] During August 2008, Stirtz Company incurred the
following costs on Job 924 for the manufacture of 600 scoreboard
clocks: Original cost accumulation: Direct materials Direct
manufacturing labor Manufacturing overhead (150% of direct
manufacturing labor) Direct costs of reworked 15 units: Direct
materials Direct manufacturing labor
$2,250 1,800 2,700 $6,750 $150 240 $390
The rework costs were attributable to exacting specifications of
Job 924, and the full rework costs were charged to the specific
job. The cost per finished unit of Job 924 was a. $12.50. b.
$11.25. c. $11.61. d. $11.90.
The following data apply to questions 8 and 9. MedTech, Inc.
manufactures surgical instruments to the exacting specifications of
various customers. During April 2005, Job 911 for the production of
4,500 instruments was completed at the following costs per unit:
Direct materials Direct manufacturing labor Allocated manufacturing
overhead $ 60 20 80 $160
Final inspection of Job 911 disclosed 100 defective units and 50
spoiled units. The defective instruments were reworked at a total
cost of $12,000, and the spoiled instruments were sold to a jobber
for $3,000. 8. [CPA Adapted] What would be the unit cost of the
good units produced on Job 911? a. $160 b. $162 c. $164 d. $168 9.
If the costs associated with spoilage and reworked units are
considered as normal to manufacturing operations, the unit cost of
the good units produced on Job 911 is a. $165. b. $164. c. $162. d.
$160. 10. [CPA Adapted] The sale of scrap from a manufacturing
process usually would be recorded as a(n) a. increase in
manufacturing overhead control. b. decrease in manufacturing
overhead control. c. increase in finished goods control. d.
decrease in finished goods control.
CHAPTER 18 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. c b d c
a c a c d b
Quiz Question Calculations 3. Units Completed Abnormal spoilage
Work in Process 6/30 (9,000 .70) Equivalent Units Work in Process
6/1 (6,000 .8) Started & Completed (18,000 6000) Abnormal
Spoilage Work in Process 6/30 (9,000 .70) Equivalent Units Original
Cost Accumulation Direct Costs of Rework Overhead Applied (240
150%) Total Cost $7,500/600 clocks = $12.50 1. Production costs
Rework costs $160 4,500 units $720,000 12,000 $732,000 (3,000)
$729,000 18,000 3,000 6,300 27,300 4,800 12,000 3,000 6,300 26,100
$ 6,750 390 360 $7,500
5.
7.
Revenue from sale of spoiled units Net Cost 739,000/4450 good
units = 163.62 or $164
CHAPTER 20 QUIZ
1. Which of the following categories of costs are important when
managing inventories of goods for sale according to the authors of
the text? a. Purchasing, ordering, supply, spoilage, and
opportunity b. Purchasing, stockout, carrying, ordering, and
quality c. Buying, holding, invoicing, opportunity, and investment
d. Supply, obsolescence, holding, stockout, and
transportation-in
The following data apply to questions 2-6. Liberty Celebrations,
Inc. manufactures a line of flags. The annual demand for its flag
display is estimated to be 100,000 units. The annual cost of
carrying one unit in inventory is $1.60, and the cost to initiate a
production run is $50. There are no flag displays on hand but
Liberty had scheduled 60 equal production runs of the display sets
for the coming year, the first of which is to be run immediately.
Liberty Celebrations has 250 business days per year. Assume that
sales occur uniformly throughout the year and that production is
instantaneous. 2. [CMA Adapted] If Liberty Celebrations does not
maintain a safety stock, the estimated total carrying cost for the
flag displays for the coming year is a. $2,667. b. $2,000. c.
$1,600. d. $1,333. 3. [CMA Adapted] The estimated total set-up cost
for the flag displays for the coming year is a. $2,000. b. $3,000.
c. $8,000. d. $12,500. 4. [CMA Adapted] If Liberty Celebrations
were to schedule 30 equal production runs of the flag display for
the coming year, instead of 60 equal runs, the sum of carrying
costs and set-up costs for the coming year would increase
(decrease) by a. $(166). b. $-0-. c. $166. d. $1,500. 5. [CMA
Adapted] The number of production runs per year of the flag
displays that would minimize the sum of carrying costs and set-up
costs for the coming year is a. 50. b. 40.
c. d.
30. 20.
6. [CMA Adapted] A safety stock of a 3-day supply of flag
displays would increase Liberty Celebrations planned average
inventory in units by a. 1,200. b. 800. c. 400. d. zero. 7. Which
of the following is not a major feature of a just-in-time
production system? a. Workers are trained to be multiskilled. b.
Emphasis is placed on increasing set-up time and manufacturing lead
time. c. Production is organized in manufacturing cells. d. Total
quality management is aggressively pursued.
CHAPTER 20 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. b d b a b a b
Quiz Question Calculations 2. Each production run is 100,000/60
= 1666.67 Average inventory is 1666.67/2 = 833.33 Carrying cost is
833.33 1.60 = $1333 60 setups $50 = $3,000 Present $1,333 3,000
$4,333 30 Runs $2,666 1,500 $4,167
3. 4.
Carrying cost Set-up cost Total 30 runs is $166 less 5. 6.
2(100,000)(50)/1.60 =
625,000 = 2,500
100,000/250 days = 40 demand per day 40 3 days = 120
CHAPTER 21 QUIZ1. [CPA Adapted] If the algebraic sum of the
present values of all cash flows related to a proposed capital
expenditure discounted at the companys required rate of return is
positive, it indicates that the a. resultant amount is the maximum
that should be paid for the asset. b. discount rate used is not the
proper required rate of return for this company. c. investment is
the best alternative. d. return on the investment exceeds the
companys required rate of return. The following data apply to
questions 26.
The Hilltop Corporation is considering (as of 1/1/08) the
replacement of an old machine that is currently being used. The old
machine is fully depreciated but can be used by the corporation
through 2011. If Hilltop decides to replace the old machine, Baker
Company has offered to purchase it for $50,000 on the replacement
date. The disposal value of the old machine would be zero at the
end of 2011. Hilltop uses the straight-line method of depreciation
for all classes of machinery. If the replacement occurs, a new
machine would be acquired from Busby Industries on January 2, 2008.
The purchase price of $500,000 for the new machine would be paid in
cash at the time of replacement. Due to the increased efficiency of
the new machine, estimated annual cash savings of $150,000 would be
generated through 2011, the end of its expected useful life. The
new machine is expected to have a zero disposal price at the end of
2011. All operating cash receipts, operating cash expenditures, and
applicable tax payments and credits are assumed to occur at the end
of the year. Hilltop employs the calendar year for reporting
purposes. Discount tables for several different interest (discount)
rates that are to be used in any discounting calculations are given
below. Assume for questions 26 that Hilltop is not subject to
income taxes. Present Value of $1.00 Received at the End of Period
Period 6% 8% 10% 12% 14% 1 .94 .93 .91 .89 .88 2 .89 .86 .83 .80
.77 3 .84 .79 .75 .71 .68 4 .79 .74 .68 .64 .59 5 .75 .68 .62 .57
.52 Present Value of an Annuity of $1.00 Received at the End of
Each Period Period 6% 8% 10% 12% 14% 1 0.94 0.93 0.91 0.89 0.88 2
1.83 1.78 1.73 1.69 1.65 3 2.67 2.58 2.49 2.40 2.32 4 3.47 3.31
3.17 3.04 2.91 5 4.21 3.99 3.79 3.61 3.43
2. [CMA Adapted] If Hilltop requires investments to earn an 8%
return, the net present value for replacing the old machine with
the new machine is a. $100,000. b. $50,000.
c. d.
($63,000). $46,500.
3. [CMA Adapted] The internal-rate-of-return, to the nearest
percent, to replace the old machine is a. 12%. b. 10%. c. 8%. d.
6%. 4. [CMA Adapted] The payback period to replace the old machine
with the new machine is a. 3.3 years. b. 3.0 years. c. 4.0 years.
d. 2.5 years. 5. The accrual accounting rate of return on the
initial investment to the nearest percent is a. 0%. b. 11.0.%. c.
5.6%. d. 30%. 6. Among the nonfinancial quantitative and
qualitative factors that Hilltop should consider in its analysis
are: a. lower direct labor cost and less scrap and rework. b. lower
hourly support labor cost and reduction in manufacturing cycle
time. c. lower product defect rate and faster response to market
changes. d. improved competitive position and cost of retraining of
personnel. 7. [CPA Adapted] The assumption that cash flows are
reinvested at the rate earned by the investment belongs to which of
the following capital budgeting methods? Internal rate Net present
of return value a. No No b. No Yes c. Yes Yes d. Yes No 8. [CPA
Adapted] The payback capital budgeting technique considers: Time
value Income over entire of money life of project a. Yes Yes b. Yes
No c. No Yes
d.
No
No
9. Refer to data for questions 26. If Hilltop is subject to an
income tax rate of 30%, what amount of annual cash savings would be
used in a discounted cash flow method or in the payback method? a.
$275,000 b. $150,000 c. $142,500 d. $105,000 10. Refer to data for
questions 26. If Hilltop is subject to an income tax rate of 30%
and a required rate of return of 8%, the net present value for
replacing the old machine with the new machine is a. $46,500. b.
$21,675. c $71,675. d. ($334,425).
CHAPTER 21 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. d d a b
c c d d c e
Quiz Question Calculations 2. PVA4 periods/8% ($150,000) 3.31 =
Cost $500,000 Less sale of old machine (50,000) Net present value
450,000/150,000 = 3.0 IRR is approximately 12% $450,000/$150,000 =
3.0 years ($150,000 $125,000)/$450,000 = 5.6% 150,000 .7 = $105,000
after tax cash flow from savings 125,000 .3 = $37,500 tax savings
from depreciation $105,000 + $37,500 = $142,500 PVA4 periods/8%
($142,500) 3.31 = Cost $500,000 Less sale of old machine (35,000)
Net present value $471,675 465,000 $ 6,675 $496,500 450,000 $
46,500
3.
4 periods factor @ 12% = 3.04
4. 5. 9.
10.
CHAPTER 22 QUIZ
1. If management decides to pursue an unwise goal, the
management control system for that company should a. reinforce this
company goal. b. be scrapped because an unwise goal will harm the
company and should not be reinforced with a systematic approach. c.
not be changed from the previous wise goals to incorporate the
current unwise goal. d. not tie the managers reward to the pursuit
of an unwise goal. 2. Which of the following is not a benefit
associated with decentralization? a. Quicker decision making b.
Increased motivation of subunit managers c. Increased competition
among managers d. Greater responsiveness to local needs Which of
the following is a cost associated with decentralization? a. Not
enough time spent in gathering information about different subunits
of the organization b. Decreased loyalty toward the organization as
a whole c. More management development and learning d. Lack of
day-to-day involvement by top management in operating decisions
3.
4. [CPA Adapted] In a decentralized organization in which
subunits may buy goods from one another, the transfer-pricing
system should be designed primarily to a. allow subunit managers to
buy from external parties. b. increase the consolidated value of
inventory. c. minimize the degree of autonomy of subunit managers.
d. evaluate performance of individual subunits and their managers.
5. [CPA Adapted] In order to motivate subunit managers to exert
effort to maximize their own subunits operating income,
interdivisional transfers of a product preferably should be made at
prices a. equal to fully allocated costs to the producing subunit.
b. equal to the market price of the product. c. equal to variable
costs of the producing subunit. d. negotiated by top
management.
The following data apply to questions 610. The Santa Fe
Manufacturing Company has two divisions in Kansas, the Holton
Division and the Derby Division. Currently, Derby buys a part
(10,000 units) from Holton for $16 per unit. Holton has purchased
new equipment and wants to increase the price to Derby to $18 per
unit. The controller of Derby claims that she cannot afford to go
that high, as it will decrease the divisions profit to near zero.
Derby can buy the part from an outside supplier for $16 per unit.
The incremental costs per unit that Santa Fe incurs to produce each
unit are Holtons variable costs of $12. Fixed costs per unit for
Holton with the recent purchase of equipment are $5. 6. Holton has
no alternative uses for its facilities. Should Derby continue to
buy from Holton or buy from the external supplier? Company as a
whole Derby Division only a. Buy from external supplier Buy from
external supplier b. Buy from external supplier Buy from Holton
Division c. Buy from Holton Division Buy from Holton Division d.
Buy from Holton Division Buy from external supplier 7. If Santa Fe
would prefer to negotiate a transfer price between the divisions,
what range of transfer prices would be used? a. $12$16 b. $12$17 c.
$12$18 d. $16$18 8. If Holton could use its facilities for other
manufacturing operations, that would result in monthly cash
operating savings of $45,000. What would be the advantage
(disadvantage) to Santa Fe? a. $(25,000) b. $5,000 c. $20,000 d.
$25,000 9. If Holton has no alternative uses for its facilities and
the external supplier drops the price to $11 per unit, what should
be done from the point of view of Company as a whole Derby Division
only a. Buy from Holton Division. Buy from external supplier. b.
Buy from external supplier. Buy from Holton Division. c. Buy from
external supplier. Buy from external supplier. d. Buy from Holton
Division. Buy from Holton Division. 10. Assume the Derby Division
is located in England rather than Kansas. The income tax rate used
in England is 45%, whereas the effective income tax rate is 30%
in
Kansas. Which cost would be the best transfer price for the
company as a whole (based upon original data)? a. Full cost of $17
b. Market price of $16 c. Variable cost of $12 d. The price that
best promotes goal congruence
CHAPTER 22 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. a c b d
b d a b c a
Quiz Question Calculations 8. External Price Incremental cost to
make Additional cost to buy $4 1000 units Income from alternative
use Advantage to buy $16 12 4 $40,000 additional cost 45,000 $
5,000
CHAPTER 23 QUIZ1. An example of a performance measure based on
external financial information would be a. market share. b. stock
prices. c. innovation measures. d. defect rates. 2. Which of the
following does not describe the six steps in designing an
accounting-based performance measure? a. The issues in each step
are interdependent. b. The decision maker will often proceed
through the steps several times before deciding on one or more
performance measure(s).
c. d.
The answers to the questions raised at each step depend on top
managements beliefs about the organization. The steps must be done
in sequence.
The following data apply to questions 37. Information pertaining
to Piney River Division of MO Corporation for 2004: Revenues
Variable costs Traceable fixed costs Average invested capital
Imputed interest rate $950,000 575,000 336,500 350,000 10%
3. [CPA Adapted] The return on investment (ROI) was a. 4%. b.
10%. c. 11%. d. 37%. 4. The return on sales (ROS), a component of
the DuPont method of profitability analysis, was (rounded to the
nearest percent) a. 11%. b. 40%. c. 0.4%. d. 4%. 5. [CPA Adapted]
The residual income was a. $3,500. b. $35,000. c. $38,500. d. $0.
6. If top management at MO Corporation adopts a 15% target ROI for
the Piney River Division, which combination (while holding other
factors constant) will yield this target ROI? a. A 1% increase in
sales volume b. A 5% decrease in average invested assets c. A 2%
increase in sales prices d. A 3% decrease in fixed costs 7. Which
of the following factors would not be needed to calculate EVA from
the given information for Piney River Division of MO Corporation?
a. Income tax rate
b. c. d.
Weighted-average cost of capital Current liabilities Current
assets
8. When calculating performance measures, it is best to use a.
steady improvement against targets. b. gross book value asset
measurement. c. historical cost asset measurement. d. current cost
asset measurement. 9. James Jessmore is a manager at a local bank.
Jamess management style is best described as entrepreneurialhe is
risk neutral. Wynetta George is a customer service representative
who reports to James. Wynetta is risk averse. In designing a
compensation package for James and Wynetta, which type of
compensation arrangement should be emphasized more? James Jessmore
Wynetta George a. Performance-based Performance-based b.
Performance-based Straight salary c. Straight salary
Performance-based d. Straight salary Straight salary 10. Moral
hazard is best described in contexts in which a. division managers
cite enormous top management pressures to make the budget as
excuses for not adhering to ethical accounting policies and
procedures. b. the numbers that subunit managers report should be
uncontaminated by cooking the books. c. an employee prefers to
exert less effort than desired by the owner because the effort
cannot be accurately monitored and enforced. d. socially
responsible companies set aggressive environmental goals and
measure and report their performance against them.
CHAPTER 23 QUIZ SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b d c d
a c d a b c
Quiz Question Calculations 3. Revenues Variable costs Traceable
fixed costs Operating income 38,500/350,000 = 11% 4. 5.
38,500/950,000 = 4.1% or rounded to 4% Operating income 350,000 10%
Residual income a. 950,000 101% 575,000 101% Operating income
$38.500 35,000 3,500 $959,500 (580,750) (336,500) 42,500 $950,000
(575,000) (336,500) $ 38,500
6.
42,500/350,000 = 12.1% b. 350,000 .95 = 332,500 38,500/332,500 =
11.6%